UK manufacturing output fell in December

British factory output fell unexpectedly in December, but a weather-related surge in energy production offset the decline, and economists said they expected a manufacturing bounce-back in January.

The Office for National Statistics said that manufacturing output dropped by 0.1 percent in December - its first decline in 8 months - after a 0.6 percent rise in November. Analysts had forecast an increase of 0.4 percent.

Few firms explicitly reported an impact from December's heavy snow, apart from utilities companies and those producing construction materials.

Helped by a surge in electricity and gas output, the wider industrial output measure rose by 0.5 percent as expected. As a result, the ONS said the figures did not point to a revision of the 0.5 percent fall in economic output recorded for the last three months of 2010.

The figures are unlikely to shift the Bank of England's broader view of the economic outlook and members of its Monetary Policy Committee are expected to leave interest rates on hold at 0.5 percent when their monthly meeting concludes at 1200 GMT.

There was little market reaction, and economists said the industrial output figure was consistent with ongoing strength in this sector, which makes up almost a fifth of the UK economy.

"It creates a slightly more confused, mixed picture, but most people will tend to attach more weight either to recent underlying trends or the very latest survey data," said RBS economist Ross Walker.

One of the main drivers of December's decline in factory output was a drop in production of bricks, cement, plaster and other "non-metallic minerals" mainly used in the construction industry. Their output fell at the fastest pace since 1979.

This decline was offset, however, by a 6.1 percent rise in electricity, gas and water output - the biggest monthly increase since May 2007.

Manufacturing output was the only bright spot in the British economy at the end of 2010, when services and construction activity was heavily hit by the coldest December in 100 years.

Earlier manufacturing PMI surveys had suggested that activity rose at its fastest pace in at least 16 years in December and January.

The government and Bank of England are relying on strong export-driven growth in manufacturing in 2011 to fill the gap created by cuts in government spending and likely belt-tightening by consumers.

However, trade data released on Wednesday showed that Britain's deficit in goods with the rest of the world hit a record high in December - albeit partly due to weather disruption to exports and a one-off jump in aircraft imports.

"I'd put the fall in manufacturing in December down to the weather and expect a hefty bounceback in January," said David Tinsley, economist at National Australia Bank. "It's really the service sector and the construction sector in the UK that we've got to worry about."